Loren Steffy: Greenspan's song remains the same

LOREN STEFFY, HOUSTON CHRONICLE

Published
5:30 am CDT, Thursday, April 15, 2010

The Maestro is tone deaf.

That's abundantly clear after Alan Greenspan's testimony before a government panel investigating the financial meltdown. Asked if he failed by not imposing regulatory measures that might have prevented or at least eased the mortgage and credit crises, Greenspan waxed nostalgic about his two decades in government service.

“I was right 70 percent of the time, but I was wrong 30 percent of the time,” he said.

If he attended my son's high school, the former chairman of the Federal Reserve would be struggling to hold on to a “D” and facing possible summer school. (Don't get any ideas, son. I expect more of you.)

For a numbers guy, Greenspan's response is statistically obtuse. Sure, a 70 percent success rate over 20 years doesn't sound so bad, but Greenie was in charge of monetary policy, which requires a different kind of precision.

In fact, as the most important guy in the financial world, Greenspan wasn't entitled to mistakes. Sure, he could misplace his car keys or forget to feed the dog, but couldn't misread the looming signs of impending financial calamity.

It was his job to defuse the economic bomb of subprime mortgages. Now he tells us he only had a 70 percent success rate?

The answer, though, is maddening not because it's steeped in wishy-washy Washington obfuscation, but because it's utter nonsense. Greenspan couldn't have functioned as a central banker knowing he was so frequently wrong.

His assessment is more conceit than meaningful response. It's subjective and arbitrary, the sort of statement to which you shrug and say “not bad overall.”

But on the issue at hand — should he have done more as a regulator to stop the crisis — his failure rate is a solid 100 percent. We are all paying the price for that, regardless of whether he acknowledges it.

A tarnished legacy

Time has shown us that Greenspan was not the economic artiste he appeared, and certainly I sang his praises at the time. But his legacy is tainted by its fallout, and his unwillingness to acknowledge error underscores an need for regulatory changes.

In his book The Lords of Finance: The Bankers Who Broke the World,Liaquat Ahamed discussed how mistakes by four key central bankers deepened the Great Depression.

“There are occasionally sacred cows that make finding the right policy almost impossible,” Ahamed told me last year.

In Greenspan's case, the sacred cow was his easy money policies. As a regulator, Greenie wasn't about to turn around and apply the brakes to what he'd helped set in motion. That would have been a public admission of failure, that his laissez-faire love affair had gone terribly wrong. Maestro wasn't going to stop the music.

Should he have?

“Figuring out what you should have done differently is a really futile activity,” he told the commission.

Actually, it is precisely the point of the entire exercise. Reviewing past decisions help ensure we make better ones the next time around.

Fortunately, we don't need Greenspan's introspection. His denial serves as an endorsement for the Consumer Financial Protection Agency, which Congress is considering among a package of financial reforms. Quite simply, Greenspan has told us that we can't expect Fed chairmen to protect consumers against the consequences of their own policies.

Fed won't protect us

We know Wall Street will victimize investors every chance it gets, and now we know that the Fed will stand by and allow it to happen.

Without a panel charged with protecting investors from the predatory practices of Wall Street — practices that even some of Wall Street's smartest didn't themselves understand — we have little hope of avoiding a repeat of the crisis.

That panel must be independent not just of political influence but the Fed's influence as well.